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Flying above Corona: Making most of the lean time in Aviation

Flying above Corona: Making most of the lean time in Aviation
July 21, 2020

For an industry that has always been driven by thin margins and where profitability is mostly elusive, COVID-19 has effectively brought the aviation sector to a standstill and is forcing leaders to rethink and reform. At the beginning of this year, the airlines industry was already fighting the known devils:

  • Uncertainty of fuel prices
  • Overcapacity
  • Aircraft reliability and regulations
  • Legacy technological eco-system
  • Missing the traveler connect both in distribution as well as in the travel experience

Amidst these challenges, the aviation industry did fairly well in 2019 and had a positive 2020 outlook:

  • Commercial airline revenue forecast stood at an estimated USD 0.8T
  • Passenger load factor was at a record high 82.6%
  • Over 80% of airlines forecasted passenger volume growth

A new category of threat: Pandemic

The airline industry that makes the world a smaller place, is feared to have accelerated the impact of the pandemic. Travel is being replaced by virtual connects and could become the norm, at least for some time and in some cases.

It is predicted that the airline industry will take at best over 18 months to recover to pre-COVID-19 levels.

It is predicted that airline industry will take at best over 18 months to recover to pre-COVID levels, if at all. The industry is already estimated to have lost USD 314 million; ~50% of negative growth; as compared to Q2 2019.

predicted

Figure 1: Year-on-year change of revenue passenger kilometres (RPKs) in the aviation industry in 2020, by region

Though the impact of COVID-19 on aviation industry is unprecedented, there are similarities on how it would recover, as was the case from the Great Recession in 2008- innovation and reformation.

predicted

It took about 24 months to revive to previous y-o-y growth rate, from 2008-2010.

Unparalleled circumstances call for exceptional actions and that is what we are seeing across the globe to revive the economy and stimulate normalcy. Though there has been government assistance to the tune of billions, it is only enough to sustain and not prepare for what is the ‘new normal’ in air travel. Adding to the fact that, the assistance greatly varies across countries and regions– the aviation sector must find their own solutions to sustain and plan for the future of travel. Well, the leaders have their thinking caps on and some of the areas being focused while restarting aviation industry post-COVID are:

  1. Operating Business Models

Assuming, as most health experts advise, the virus stays with us and there could be more such pandemic in the future– low-cost carriers (LCC) and ultra-low-cost carriers (ULCC) will not be able to provide the cost advantage that they now can. There could be less cabin differentiation for full-service carriers (FSC), given the social distancing norms in place.

  1. Sales and Distribution

In the current fragmented distribution landscape, airlines have limited control over offering the best value proposition for customers consistently across the channels. Given the limited impact now, this will be a good time for experimenting a collaborative direct sales platform.

  1. Customer Experience

Knowing your customer becomes ever more important. Apart from the eminent focus areas, the post-COVID-19 world could require dynamic medical check/tracking as well, along the lines of the Electronic System for Travel Authorization (ESTA). It may be a good time to push pedal on IATA’s OneID program.

  1. Engineering and Maintenance

This will be the right time to decide on which aircrafts to retire from the fleet and/or repurpose. While passenger travel won’t pick up until long, air cargo could be an area of diversification.

  1. Airport Management and Ground Handling

Airports will require major restructuring in their designs and current ways of passenger handling. Given that there could be social distancing norms and threats from more such pandemics - flow management, baggage and security will have a redesign. Ground handling of aircrafts, especially cleaning and disinfection will see a process revamp.

  1. Reshaping the Current Workforce

While job cuts/unpaid leaves across the industry isn’t avoidable, this pandemic will trigger a reshaping of the current workforce. Most of LCCs already run on lean staffing models with a major chunk of risk transferred to third-party companies, but the FSCs will need to look at an organizational level restructuring– regrouping crews away from traditional models, transferring further risks to third parties, etc.

The common theme across all these areas would be efficiency and preparedness for business continuity for future disruption, such as COVID-19.

Digital transformation, already replacing digitization, will be the key driver in realization of benefits and business sustainability as is being proven in the current scenario across industries– the multitude of retail e-commerce websites and mobile apps seeing a surge in hits across the globe, schools and colleges adopting e-learning, hospitals and clinics driving e-consultations, etc.

Is digital transformation in aviation possible, especially when there are no travelers?

Well, to answer that, we need to relook at the focus areas alongside the challenges that were existing even before this pandemic broke. If the industry ever wanted to get back to its drawing board and start afresh, there was no room for dedicated collaboration, while on the roll. Now, given that we are globally grounded, by and large, it is the best time to collaborate and creatively innovate across the value chain.

The win-win situation would be to transform the best possible way to address both these challenges– legacy systems, processes (existing), and post-COVID-19 travel (new).

  1. Embrace the Start-up Mindset: Innovative while being Technologically Lean

Airline systems were hardly transformed. All the major IT investments were focused on digitizing a pre-existing process, and not really looking at redesigning and transformational change, due to the legacy ecosystem and dependencies.

  1. Catch the Cloud and Secure Them

Cloudification was already a top investment priority for all the interviewed airlines according to the latest SITA IT Insights report. Adding cybersecurity to the equation provides secure, scalable, and dependable digital assets.

  1. Customer Experience

Lockdowns across the globe has led to new ways of interactions online, also leading to increased mobile adoption. It is imperative that airlines leverage this customer confidence in digital channels and innovate processes to reduce travel frictions, including disruption handling, thereby elevating the end customer experience.

  1. Use of Modern Technology for Analysis and Forecasting– Artificial Intelligence and Big Data

An AI-based platform– Blue Dot had accurately predicted the possibility of an outbreak prior to it being declared as a healthcare emergency. There are multiple use-cases for the same in aviation– network planning, analyzing business models, revenue management, predictive maintenance, and traveler sentiment analysis.

To conclude, no one can accurately predict what the future holds. Until then, we await to see if this is a ‘Mayday’ or a ‘PAN-PAN’ signal for the aviation industry.